Buyer Boosts Stake in Rising Sonus

THE STOCK IS NEAR MULTIYEAR HIGHS and the company is facing delisting, but one value investor sees potential in
Sonus Networks,
a maker of equipment for Internet phone networks.

This week Legatum Capital bought 1.14 million shares for $9.7 million, or an average of $8.49 per share, according to Securities and Exchange Commission filings. Legatum's holdings were disclosed by its parent company, Senate Limited -- a Cayman Islands trust.

Since first disclosing a 6.6% stock position in March, Legatum, which calls itself a "long-term value-oriented portfolio investor," has bought 19.7 million additional shares for a 14.6% stake in Sonus. The Dubai-based investor is now Sonus' largest shareholder, according to data from StreetSight.net. Fidelity Research & Management is second with a 13.9% position.

Neither Sonus nor Legatum responded to requests for comment.

Since Legatum's initial disclosure in Sonus -- a provider of infrastructure for wireless and wireline voice over Internet protocol (VoIP) networks -- the shares have gained more than 17%. And, over the past 12 months, the company's stock is up 89% versus a 24% gain for the Dow Jones U.S. Telecommunications Equipment Index.

Yet, Sonus is surrounded by some uncertainty, as the company continues an options-grant review that has delayed the filing of its last four quarterly reports. On Tuesday, Sonus said its shares would continue to trade on the Nasdaq Global Select Market after the Nasdaq Board of Directors "granted a stay of the delisting of the company's securities pending further review by the Board in July."

Sonus said the filings would take place "as soon as possible" and expects to regain compliance for continued listing.

In addition to Legatum, the overall institutional ownership in Sonus has steadily risen since 2005, according to Joshua Hong, director of research at OwnershipAnalyzer.com. As of this year's first quarter, 161 institutions held 167.4 million shares, up from 126 institutions with 118.6 million shares in the third quarter of 2005.

Short interest, though, has also increased of late, Hong said in an e-mail, from 19.8 million shares on Feb. 15 to 28.2 million as of June 15.

While Legatum and other institutions have been active buyers, company officers and directors have been quiet on the investment front, with the last insider transaction taking place in October 2003, according to InsiderScore.com data. As such, Sonus gets a relatively neutral score of four on Thomson Financial's 10-point insider rating scale (with 10 being the most bullish).

Wall Street is also neutral on the company's shares, with 13 firms averaging a Hold rating (or its equivalent), according to Thomson Financial's First Call Mean.

After the company's abbreviated fiscal first-quarter report in May came in below expectations, Cantor Fitzgerald analyst Edward Jackson maintained a Hold rating and $7 price target. "We continue to feel Sonus is well positioned to capitalize on the growth of VoIP services, but remain limited in our enthusiasm for the shares because of valuation," he wrote in a research report. "Hence, we suggest that new investors sit on the sidelines at this time."

With shares up 17% since the May earnings report, however, the market seems more persuaded by the bullish argument of SMH Capital's Natarajan Subrahmanyan. In his postearnings research report, Subrahmanyan maintained a Buy rating and $9 price target.

He wrote that Sonus shares were "reasonably valued" and said the company "remains one of the best growth stories in our coverage space."

"Given the company's leadership in an important segment of communications equipment that is benefiting from reallocation of spending, strong near-term momentum and a potential inflection point in the VoIP market," Subrahmanyan added, "we think Sonus deserves a premium multiple to the communications-equipment group."

Recent Insider Activity

BUYERS:

COMPANY NAME

INSIDERS NAME

TITLE

$ VALUE

NO. OF SHARES IN TRANS.

RANGE OF VALUES

TRANSACTIONS DATES

Micromet

P. Johann

D

$2,443,233

908,265

2.69

June 22, 2007

OccuLogix

E. Vamvakas

CEO

1,999,998

1,904,760

1.05

June 22, 2007

Micromet

J. Benjamin

D

977,293

363,306

2.69

June 22, 2007

Debt Resolve

W. Mooney

D

78,254

23,100

3.29-3.40

June 19-20, 2007

Biodel

F. Reding

CFO

70,950

4,730

15.00

May 16, 2007

Insmed

S. Glover

O

62,936

80,000

0.78-0.79

June 25, 2007

Bionovo

M. Vanderhoof

D

60,627

15,000

4-4.10

June 22, 2007

ProLogis

A. Zulberti

D

56,791

1,000

56.79

June 26, 2007

Micromet

D. Hale

D

48,864

18,165

2.69

June 22, 2007

Community Trust Bancorp

R. Sparkman

O

45,374

1,400

32.41

June 25, 2007

(Source: Thomson Financial/Baseline)

SELLERS:

COMPANY NAME

INSIDERS NAME

TITLE

$ VALUE

NO. OF SHARES IN TRANS.

RANGE OF VALUES

TRANSACTIONS DATES

VeriFone Holdings

C. Bondy

DO

$123,795,141

3,500,004

35.37

June 25, 2007

VeriFone Holdings

C. Roche

DO

123,795,141

3,500,004

35.37

June 25, 2007

Altra Holdings

J. Conte

DO

110,119,218

7,058,698

15.60

June 25, 2007

Altra Holdings

D. Gold

DO

110,119,218

7,058,698

15.60

June 25, 2007

Altra Holdings

R. Paterson

DO

110,119,218

7,058,698

15.60

June 25, 2007

GameStop

J. Kim

D

38,173,641

952,669

39.98-40.14

June 25-26 2007

Gamestop

J. Kim

D

17,914,991

447,300

40.05

June 21, 2007

Hansen Natural

M. Hall

O

12,073,360

270,400

44.65

June 22, 2007

Actuant

R. Arzbaecher

CEO

7,206,533

115,643

62.12-62.57

June 22-25, 2007

Universal Insurance Holdings

B. Meier

CEO

6,155,500

947,000

6.50

June 22, 2007

(Source: Thomson Financial/Baseline)

Here's a rundown of insider trading activity reported on June 28, 2007. An insider is any officer, director or owner of 10% or more of a class of the company's securities. The table shows purchases and sales which must be reported to the SEC and other regulators by the 10th of the month following the month of the trade, includes both open-market and private transactions involving direct and indirect holdings. Excludes stock valued at less that $2 per share, acquisitions through options and companies being acquired. Included are purchases, sales and stock registered for sale for individual officers, companies, and sectors.

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